HMRC Enquiry Settlements: some flexibility is allowed after all

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The High Court held that HMRC’s decision to reach a settlement with Goldman Sachs in relation to outstanding national insurance contributions (NICs) and interest thereon was not unlawful, as had been challenged through Judicial Review.

This is a welcome decision as, if the decision had been different, it would have set a precedent that could have impacted greatly on the scope to flexibly resolve outstanding tax enquiries with HMRC.

The point in question is whether HMRC had to charge interest on an amount of unpaid NICs later found to be due.  HMRC deviated from the standard approach taken in reaching settlement.

The court found that the guidelines in HMRC’s own settlement strategy were not applicable because the situation was unique and was not contemplated in the strategy. Goldman Sachs had threatened to withdraw from the code of practice for banks if HMRC required it to pay interest on outstanding NICs due which was thought could give rise to embarrassment to the Chancellor of the Exchequer. The court found that HMRC would in any event have approved the settlement which involved waiving the interest. The court also found that HMRC was correct to consider its relationship with Goldman Sachs and its wider reputation when approving the settlement.

The court’s decision is not surprising as many expected that the judicial review application would be dismissed. However, it has caused a lot of embarrassment for HMRC with the court acknowledging that “the settlement with Goldman Sachs was not a glorious episode in the history of the Revenue”.

HMRC has since reviewed and strengthened its governance processes and the fact that the case was taken has led to a more cautious approach being taken by HMRC in discussing the scope of any settlements.

For assistance in negotiating HMRC settlements please contact Leanne Hathaway, our in house Chartered Tax Adviser.  The above decision was reported on 16 May 2013.

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